WHAT IS PERFORMANCE MANAGEMENT?
"Performance Management is a holistic management discipline which needs to connect many relevant dots to involve development, enablement, and enhancement."― Pearl Zhu, Digital Maturity
We have all heard about employee performance and the importance of doing it. However, there seem to be too many guidelines that specify various metrics to measure or gauge the performance of a workforce. Before we get into the nitty-gritty of how to assess it, let us try and understand what employee performance is. It often depends on whom you ask, for a shareholder it could be about an increase in the price of his shares, for a manager in a profit sharing plan, it could be an increase in the net profit, and for a monthly salaried employee, it could be about job security, income security and so on. This variation tells us two things about the nature of how people perceive “performance".
- It is subjective
- It has more than one influencing factor
However, it also highlights the fact that there no clear metric to define or gauge an individual’s performance in a universal standard. To be able to extract relevant value out of “performance” as a criterion, we can borrow the open system model of human resource management that gives a way to categorize work performance based on two following standard.
- Individual criterion
- Group criterion
Inputs - Inputs include an employee’s knowledge, skill, and competency which also entail their abilities, and attitude. In brief, it is the total of all their available resources.
Throughputs - these are initiatives that morph your inputs into results. Throughputs entail the work effort put in by the employee and actions taken toward achieving a particular goal. To sum it up briefly, it is the total expenditure of energy by the employee towards the achievement of the result.
Output - This directly correlates to the results achieved as the outcome of the input and throughput.
To give an example, an employee has a certain amount of skillset (inputs), which he uses with a particular competency (throughput) to achieve the desired results (Output).
This way of breaking down the “performance” into more straightforward criterion gives us a broader scope to identify and reward or criticize their shortcomings in a specific part of the individual performance. However, performance, as a whole is multivariate and has a massive amount of external factors that influence it. For example, let us consider behavior; the collective response of a group could very well be a strong individual factor in the overall and individualistic performance. An employee working in a dysfunctional team is more likely to be dysfunctional. The same problem can also be looked from the other side of the lens where a single dysfunctional team member could very well influence the overall performance of a group. Today, performance management is often considered as a continual effort, involving employee and organizational participation with a co-owned stake in the company’s future, which requires persistent effort involving a commitment of time and resources.
The Bell curve in performance management
For a significant time in the performance management history, what has been widely followed until recently was the Bell Curve. The bell curve is also known as a standard distribution curve that is “forced in nature”. It operates on the presumption that there are always a minimal number of low performers, a minimal number of good performers and a large population of average performers in the middle. By the rules of a bell curve distribution, there can never be a possibility where everyone in the team has performed well. Moreover, this also incentivizes the average performers to stay the same. The bell curves also “Forces” grouping of employees based on a rating and this propounds employee churn when directly tied to compensation.
Why the bell curve is wrong
"People are not your most important asset. The right people are." ― Jim Collins, Good to Great
A study conducted in 2011 and 2012 by Ernest O’Boyle Jr. and Herman Aguinis debunked this model for it’s regressive and forced nature of grouping everyone and also illustrated that in many of the popular fields, the distribution did not follow a bell model, but what is called a long-tail or power law curve model.
Power law curve model
In this model, the distribution is not normal, but distributive in nature, where there are a very few hyper-performers, a large section of people who are good performers and a small part of people with low performers. Mathematically there is much higher variance in this curve, as it attributes a significant portion of the performance to the few hyper performances and the rest are somewhere between slightly above average and lower than average. This reason is why the power law curve is also called the long tail distribution model.
WHY SHOULD COMPANIES DO PERFORMANCE MANAGEMENT?
"There is something that is much more scarce, something rarer than ability. It is the ability to recognise ability." ― Robert Half
Because without somebody to guide the direction and provide motivation to do well, employees will be left without directionality and persistence to be consistently productive. In modern organizations where fast-paced growth is required, it is imperative that the workforce can adapt to shifting goals at a higher velocity and accommodate the changing needs of market and customer.
HOW DO I MEASURE PERFORMANCE?
According to this book Managing Employee Performance and Reward by John Shields, performance measurement relies heavily on the following four essential requirements:
- Felt fairness
Validity primarily is correlated with the mentioned criteria with which an employee is defined or is associated with specified standards and secondly to the accuracy of performance based on quantifiable measures and indicators. The emphasis is also placed on whether the chosen signs indeed mirror the original production. The more valid this definition of production and the correlated metrics, the more it resembles the responsibilities associated with the role of the employees. In simple terms, validity is about whether the parameters were chosen to evaluate the performance truly capture the burden of the job-role involved, whether the right things are measured and whether the selected metrics are accurate enough to be standardized.
Validity itself can be dissected into three dimensions:
Construct validity - Do we measure the right things?
Content validity - Are we measuring enough of the right things?
Criterion-related validity - Accuracy of measures chosen based on the desired outcome
A construct valid performance management system is one where the metrics were selected to measure the job, correctly evaluates the work, position, and role involved in doing the job. It is directly concerned with the relevance of the metrics chosen to assess performance.
Content validity correlates to the breadth of factors captured in measuring performance. A measurement is said to be content valid if it encompasses all the different responsibilities entailed within a job position. To put it in simple terms, the duties of the job taken into account for evaluation should cover all the aspects of the job being evaluated. However, it doesn't have to encompass every menial task bound with the role; it should still contain enough of the right things that are critical to success in a specific position.
It defines the degree of subjectivity between the metrics used to evaluate employee performance and what the organization requires from the employee. For example, poor personal grooming standard could be a factor in the production of a field sales agent, which would make very little difference for a marketing executive as there is an apparent mismatch between the defined metric and the required output.
Reliability correlates to the accuracy of the process of measurement as opposed to the metrics used in the analysis. Being reliable means that a proper measuring criterion is a pre-requisite for reliable measurement. For example, a measuring ruler is a valid criterion of study, but it isn’t reliable if the person measuring cannot read Arabic numerals. Reliability is scored on a scale of +1.0 to -1.0. Here positive 1.0 denotes perfect reliability and negative 1.0 denotes absolute unreliability.
Cost-effectiveness of a performance management system is not only about the economic aspect of ROI, but also the investment of time, energy and resources. A well-planned performance management process may be expensive in the short term; however, it could free up a lot of time, and effort with a smooth process that can be used to standardized performance evaluation that includes minimal deviation.
In academic literature, felt-fairness is termed as “organizational justice”, and it is the prime determinant of a justified, correct and unbiased outcome. For any evaluation to be effective, the system should meet the requirement of
Procedural fairness - The guidelines followed were fair and justified.
Distributive fairness- All evaluations were applied to everyone without any bias based on cast, creed or sex.
Though following these suggestions may not immediately establish a foolproof system, it provides the necessary structure to identify where it deviates.
WHAT FACTORS INFLUENCE PERFORMANCE MANAGEMENT?
"A company could put a top man at every position and be swallowed by a competitor with people only half as good, but who are working together." ― W. Edwards Deming
According to a study in the Role of Corporate Culture and Employee Motivation, the main factors that influence performance management tend to be
- Leadership style
- Employee Motivation
- Organizational culture
Leadership is an effort to inspire a vast set of people through communication, to accomplish the intended goal. The way it influences many people is either through guided instructions or dictated orders. It is a continuous process that is undertaken by the leader to guide and motivate others to do what he pleases, out of their own volition.
Leadership style heavily influences employee inspiration and motivation in their job. Thus it could either be a positive or negative influence that inhibits employee performance. It mostly comes down to a balance of two modes.
Transactional - An ecosystem of Reward and punishment, where success is rewarded, and failure is punished
Transformational - An ecosystem of consistent motivation and reasoning to see the positives of successfully doing the work.
Modern leaders may need to find the right balance to get the work done with the least amount of friction.
Motivation is a determinant for hunger, passion, and goals of an employee to accomplish an objective. Motivation is, in fact, the primary driving force that advocates a real appetite for success. Human needs are not only limited to rewards and compensations, but also psychological such as recognition and motivation. We have two types of needs. Basic and higher level. If our higher level needs are satisfied the urge to satisfy basic needs are greater, on the other hand, If our basic requirements are fulfilled, the call to meet higher level needs is more significant.
An organization’s culture is the basic guidelines in place for the employees to handle and resolve issues, form a uniform environmental code of conduct and to unify the team within the organization. Organization culture that is shared across a company is imbibed by all the following members of the organization. It is one of the crucial factors that determine the strategy and performance of an organization.
A performance management system should align towards both vertical and horizontal alignment, where it seamlessly integrates with all facets of the business such as strategy, employee development, and quality. It is broadly classified into two types:
Vertical integration ensures alignment of strategic goals with team objective. These objectives are cascaded down from a single north-star metric of the organization. More importantly, these objectives should be agreed upon by all the collaborators and not forced, which paves the way for co-owned accountability and mutual sharing of success.
Horizontal integration is the alignment of performance management with human resource activities, which directly correlate to remuneration, involvement and people development. This influence of performance management on the efficiency of an organization is drastically propounded because it is the primary medium to amalgamate the multiple approaches that businesses can adapt to increase the efficiency throughout their process of people management, motivation, and development.
If you wish to know more about how the lack of this integration results in the invisible wedge problem, click on the highlighted link.